The Transfer Pricing Beat: News for the Week of February 22, 2021
Dominican Republic Releases Annual Tax Guidance
The Dominican Republic tax authority recently released its annual tax guidance. This year’s version identifies transfer pricing thresholds and an updated tax haven list. Here’s the fine print: the transfer pricing documentation threshold has been bumped up from 11.5 million pesos, approximately $199,000, to 12.1 million pesos, or nearly $210,000. Entities that fall below this range are off the hook from preparing a transfer pricing study and revealing the arm’s length range in the disclosure form. But, if a controlled transaction is conducted with an entity in a low tax jurisdiction, taxpayers can say goodbye to the threshold. The guidance also lists countries that are free of preferential tax regimes.
The Dominican Republic is one of the countries that has “deemed controlled transactions.” What does this mean for the taxpayer? If it has transactions with a company in a preferential tax regime, even if they aren’t related, the taxpayer would need to document the transaction. If they’re not on the list, it only needs to be documented if it’s a transaction with a related party.
Coca-Cola Is Facing Additional Liabilities
Coca-Cola is facing more liabilities in its legal battle with the IRS to a total of 12 billion. The new estimate is based on the IRS’s proposed transfer pricing methodology. Coca-Cola used the residual profit split method, but the IRS argued the comparable profits method was best. If Coca-Cola loses its appeal case, it will get slapped with more than just a hefty bill—the beverage giant could see its tax rate increase by 3.5 percentage points. Even after its recent 3.3 billion dollar hit for tax years 2007, 2008, and 2009, Coca-Cola is on the offensive. It recorded a $438 million tax reserve for 2020 but plans to “assert its claims on appeal and vigorously defend its position.”
Ferragamo France Goes to Court Over Resale Price Method
Salvatore Ferragamo, the luxury shoe manufacturer, faces legal pushback over its use of the resale price method. Ferragamo France, a distribution affiliate of Salvatore Ferragamo SPA, took a 25% gross margin as a distributor—a move that the French tax authorities did not agree with. While the affiliate did report losses from 1996- 2009, the French tax authorities revealed some harrowing data. Compared to 19 third-party distributors, Ferragamo had a higher rate than those operating expense-to-sales ratios. In the second round of legal proceedings, the Paris Administrative Court opposed the tax authority’s ruling. Their argument? The Italian parent company didn’t charge the French affiliate any royalties, and Ferragamo France made profit from 2010-2015. And though it appeared the courts had come to an agreement— France’s Supreme Administrative Court reversed the ruling, siding with the tax authority.